Ideas for the Mambu Banking Engine

An Option to decide if Locking Capped accounts is “soft” or “hard”

What: Add an option under Loan Product > Internal Controls > “Cap Arrears Accounts when Interest, Fees, Penalties ….” that will determine if the Capping should be:
(a) “soft” - the account would be locked AFTER posting the transaction (Interest, Fees, Penalties Applied) that is causing the account to reach the cap (current behaviour)
(b) “hard” - the account would be locked BEFORE posting the transaction (Interest, Fees, Penalties Applied) that is is causing the account to reach the cap (new behaviour)
 
In summary:
  • with “soft” (partial) capping, any charges that become due will be applied first, then the account would be locked so that no new charges apply (as a result, the account could be slightly over the capping limit)
  • with “hard” (full) capping, no charges apply if they bring the account over the capping limit
Why: In order to comply with legal requirements, some organisations may not be allowed to recognise any Interest, Fees or Penalties if they exceed the capping limit, even by very little. 
For example, in the event there is let’s say £995 of interest already charged on a loan, and a transaction of £10 interest accrued is to be applied - it should not be applied at all. If the total of £10 was applied - that would be a breach of legislation.
  • Dorota Nosal
  • Dec 1 2016
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  • Kelly Jaques commented
    28 Feb, 2017 11:56am

    Another thought, the example given if an account is at £995 and a transaction of interest accrued of £10 to be applied should not, is not a good example. The amount is very small.  It is more likely a scenario of the loan is for £1000, and the account is at £910 and a transaction of £120 interest accrued is to be applied.  It would be very unrealistic not to apply as much of £120 interest accrued as possible for the remaining headroom (1000 - 910 = 90) Therefore it is more logical to apply £90 of the £120 and adjust £30 out of the account due to In Duplum. 

  • Kelly Jaques commented
    26 Jan, 2017 05:44pm

    Further to the above, to make it crystal clear, the interest, fees, penalties should never go above the % of the In Duplum rule. 

  • Kelly Jaques commented
    26 Jan, 2017 05:41pm

    Soft or Hard calculation should not include repayments made on the account when comparing amounts for In Duplum rule. They are not relevant to this rule, therefore basing the principle amount (in arrears) is not satisfying the UK or Romanian legal definition. It is possible for an account to hit In Duplum without ever being locked if repayments are considered.  It should be Original loan principle disbursed is less than or equal to any/all fees and interest applied.

     

    In Duplum – hard –

    • agree with respect to Fees, they should not be applied if when Fees are added to the Fees and Interest Applied Total, and this balance will be greater than the Original Principle Disbursed Amount.  
    • However, Interest, specifically Daily Interest could be applied until the first day the Fees and Interest Applied Total is greater than the Original Loan Principle Amount disbursed. Then the date interest is calculated and added to the Fees and Interest Applied Total, the account should be locked and that day’s interest reversed.  Then the Fees and Interest Applied Total would never be greater than the Original Loan Principle Amount Disbursed.
    • This should follow the Repayment Allocation Order set out in the product in case both a Fee and Interest are applied on the same day and either or both may cause the Fees and Interest Applied Total to become greater than the Original Loan Principle Amount Disbursed. Ie, a fee could be applied, or interest first depending on allocation order, but if either one causes the Applied Total to be greater than the Original Principle Disbursed Amount when applied individually neither should be applied or they should be reversed from the  Applied Total to the first instance where the Applied Total was less than or equal to the Original Loan Principle Amount Disbursed.